Quis custodiet quem? Sovereign Debt and Bondholders` Protection Before 1914

Rui Esteves

No 323, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: The half-century before World War I has been characterized as the first age of financial globalization. This paper focuses on the role and significance of the bondholders` organizations for the governance of this market. I argue that the outcome of these institutions depended on two dimensions: the institutional variation that characterized these organizations and their strategic interaction. These aspects are addressed using a model of sovereign debt with constant renegotiation. An original data set with information on the settlement of defaulted debts in the period 1870-1913 is used to test the implications of the model. Empirical results support the premise that the quality of bondholders` representation matters for the terms of settlement and the costs of renegotiation. Renegotiation-friendly but not debtor-friendly organizations yielded the best ex post results for their members. The representation of bondholders` interests by the issue banks on the other hand, produced inferior outcomes.

Keywords: Sovereign defaults; Bondholders` organizations; Pre-1913 (search for similar items in EconPapers)
JEL-codes: F34 G15 N10 N20 (search for similar items in EconPapers)
Date: 2007-04-01
New Economics Papers: this item is included in nep-his
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Citations: View citations in EconPapers (32)

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